Bond Expert: Monday Outlook

Prices of Treasury coupon securities are posting mixed changes in overnight trading but economic weakness is still pervasive and uncertainty wracks the markets concerning the length and depth of the weakness.

The yield on the benchmark 2 year note is unchanged at 1.21 percent and the yield on the 3 year note is unchanged at 1.54 percent. The yield on 5 year note has edged lower one basis point to 2.32 percent. The yield on the benchmark 10 year note has slipped 3 basis points to 3.71 percent. The yield on the 30 year bond has declined a basis point to 4.21 percent.

The 2/10 year spread has narrowed 32 basis points to 250 basis points.

The 2 year/5 year/30 year spread is at 78 basis points.

The G20 meeting this weekend ended with bland platitudes and a vow to meet again when leadership has shifted from Bush to Obama in the US.

Japan is officially in recession as its GDP fell 0.4 percent in Q3. Prognosticators had expected an increase of 0.1 percent.

Equity markets are mostly weaker in overnight trading. In spite of the weak GDP report, Japanese stocks finished marginally higher. Hong Kong stocks posted modest losses while Australian equities tumbled more than 2 percent.

European equities have fallen about 1.5 percent and futures are pointing toward a drop of about 1.5 percent when trading resumes in the US.

Home prices in the UK fell at the fastest pace since RightMove PLC began collecting data in 2002. The average home price is down more than 7 percent YOY.

Additionally, a UK business forecasting group suggested the UK economy will contract nearly 2.0 percent in 2009.

In France a survey of confidence amongst manufacturers plummeted to a 21 year low in October as the global slowdown crimped demand.

In the US, market participants eagerly await the Empire Manufacturing Index and the Industrial Production release this morning.

Political and economic discussions this week will be dominated by discussions of a bailout for the US auto industry. With the full weight of the government supporting the financial sector, it is an easy leap to support a bailout of the troubled automotive business.

The business is sick and dying and hobbled by an archaic cost structure. I was the only guy on Wall Street who was comfortable driving a Mercury. Unless a bailout mandates management changes as well as changes to union contracts which are slowly asphyxiating the companies, then the money would be poorly spent.

IG11

IG11 opening 8 wider at 210/214

Libor Chart

Libor US$ Fixing
11/17 11/14 Change
OVERNIGHT .40000 .41250 -.01250
1 WEEK .91875 .91250 .00625
2 WEEKS 1.12750 1.11125 .01625
1 MONTH 1.47375 1.47750 -.00375
2 MONTH 2.11375 2.11625 -.00250
3 MONTH 2.23875 2.23625 .00250
4 MONTH 2.39500 2.39250 .00250
5 MONTH 2.54000 2.54250 -.00250
6 MONTH 2.71375 2.71375 .00000
9 MONTH 2.79750 2.80500 -.00750
12 MONTH 2.88000 2.90500 -.02500